EMBARGOED UNTIL 6 PM PT MON-- SolarCity_NRDC - Nevada NEM Benefit Cost Analysis.pdf

7/26/2019 EMBARGOED UNTIL 6 PM PT MON-- SolarCity_NRDC - Nevada NEM Benefit Cost Analysis.pdf

1/19

May 2016

Executive Summary

Rooftop solar photovoltaics (PV) and distributed energy resources can deliver net benefits to Nevadans today and, if

thoughtfully utilized, play a significant role in Nevadas energy future. However, these benefits are not being fully

realized in practice today. Narrow accounting of distributed resources contribution to the grid, financial disincentives

embedded in utility regulatory models, and outdated grid planning procedures are preventing full utilization of these

assets. But these obstacles can be readily overcome. Doing so will deliver benefits to all Nevadans, as well as cement

Nevadas position as a leader in the transition to a clean, resilient, and affordable electric grid.

Rooftop Solar and Distributed Energy Resources Provide Net Benefits to All Nevadans

This report presents an economic analysis of the benefit of harnessing distributed energy resources (DER)assets like

rooftop solar, smart inverters, energy storage, energy efficiency, controllable loads, and electric vehiclesto build and

operate a 21

st

century power grid. Such cost/benefit analyses are routinely performed across the industry; however,recent DER analyses in Nevada have not accounted for the full set of costs and benefits. Our analysis aims to provide a

more complete accounting of the full costs and benefits of rooftop solar and DERs.

To perform this cost/benefit analysis, we build on existing industry methodologies to calculate the net benefits of

rooftop solar and DERs in Nevada. Specifically, we utilize the NevadaNetEnergyMeteringPublicTool, a model used to

quantify the costs and benefits of distributed generation that Energy+Environmental Economics (E3) developed for the

Public Utilities Commission of Nevada (PUCN) in July 2014.1 Then, we utilize the costs and benefits specified by the

PUCN in their December 2015 Order related to net energy metered (NEM) solar deployments, as well as in their April

2016 Procedural Order related to Sierra Pacific Power Companys Integrated Resource Plan.2,3

Using the NevadaPublicTooland the PUCN-specified benefit and cost categories, we find that deploying additional

NEM rooftop solar would deliver positive net benefits to all Nevadanswhether or not they own solar and DERs. Whilea net cost would indicate that NEM is providing a subsidy to solar, our results conclude that the opposite is true:

rooftop solar provides a net benefit to all Nevadans in the range of 1.6 to 3.4 cents per kilowatt-hour (kWh) of solar

production, as depicted in the figure below (and detailed on page 12). 1.6 cents/kWh includes benefits that are directly

captured by the utility, while 3.4 cents/kWh includes environmental externalities that benefit all Nevadans at large.

AnnualNetBenefitsof2017-2019NEMRooftopSolarDeployments

$0.016

$0.034

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

Benefits Costs Net Benefits

(Excl. Environmental)

Environmental

Externalities

Net Benefits

+ Environmental

2015Levelized$

/kWh

Distributed Energy Resources in NevadaQuantifying the net benefits of distributed energy resources


2/19

www.solarcity.com/gridx | www.nrdc.org | Page 2

These results are important as they demonstrate that continued deployment of rooftop solar under NEM benefits all

Nevadans. Utilizing this same methodology to assess the full set of costs and benefits for the roughly 23,000 existing

rooftop solar systems currently deployed in Nevada,4we calculate a net value of $7-14 million per year to all Nevadans.

These benefits will increase over time as storage and load control are deployed alongside rooftop solar in the future.

Full Rooftop Solar and DER Benefits Should Be Accounted for in Cost/Benefit Analyses

While our analysis shows that all utility customers in Nevada benefit from rooftop solar and DERs, these benefits arenot being fully captured under current Nevada regulatory cost/benefit analyses. Specifically, in December 2015, the

Public Utilities Commission of Nevada stated in their NEM tariff order that For other than the avoided energy and

energy losses/line losses, there is insufficient time or data in this proceeding to assign a value to the other nine

[benefit] variables.5Going forward, we offer our analysis as a resource to assign values to the other nine variables

identified by the PUCN. Herein, we detail our methodology, assumptions, data, and sources to facilitate replication of

our analysis in hopes that it will inform policy and regulatory discussions on the value of solar and DERs under NEM.

Utility Financial Disincentives are a Barrier to Capturing DER Benefits

Many utilitiesincluding NV Energy (NVE) earn shareholder profit by building more infrastructure and selling more

electricity to customers. Under this paradigm, utilities see a negative financial impact from procuring grid services from

resources that they do not own which includes the vast majority of DERs even if those assets provide reliableservice at a lower cost. This traditional utility model was established at the industrys start to encourage the expansion

of electricity access across the country. However, in this age of customers managing their own energy via DERs, the

original regulatory model is outdated. An updated approach should consider the range of services that customers

desire, and then form market and procurement structures to provide those services at the lowest total cost to society,

irrespective of where the service is derived. Furthermore, the financial disincentive that currently biases utility

decision-making against DERs needs to be removed, encouraging grid planning to deploy grid investments that

maximize customer benefits regardless of ownership structure.

Grid Planning Should be Modernized in Order to Capture DER Benefits

A second structural impediment to realizing DER benefits is the current grid planning approach, which, by providing

little attention to actions on the customer-side-of-the-meter, biases grid design toward traditional infrastructure, evenif distributed solutions better meet grid needs. Combined with the utilities financial incentive to build more

infrastructure and sell more electricity, traditional utility planning can encourage overinvestment in grid infrastructure.

Furthermore, outdated planning approaches rely on static assumptions about DERs capabilities and focus primarily on

mitigating potential integration challenges rather than proactively harnessing these flexible assets. This report

recommends modernizing grid planning, calling for the utilization of an IntegratedDistributionPlanning6approach that

encourages incorporating DERs into every aspect of planning rather than merely accommodating DER interconnection.

Key Takeaways

This analysis performs a more complete accountingof thecostsand benefitsof rooftop solar deployments

under NEM utilizing the cost and benefit categories identified by the Public Utilities Commission of Nevada and

methodologies embedded in the NevadaNetEnergyMeteringPublicTool. Utilizing the PUCN cost/benefit categories and the Nevada NEM Public Tool, rooftop solar deployments under

NEM offer netbenefits toallNevadan utilitycustomersofbetween1.6 and3.4 centsperkilowatt-hour for

deployments during 2017-2019.

Utilizing the PUCN cost/benefit categories and the Nevada NEM Public Tool, Nevadas roughly 23,000 existing

NEM rooftop solar customers already providenetbenefitstoallNevadansof$7-14millionperyear.

Utilityfinancialdisincentivesshouldbemitigatedand utility planningprocessesshouldbemodernizedin order

to remove barriers to capturing the value that distributed energy resources provide to the grid and customers.


3/19


Recommendations and Next Steps

Our ultimate goal in performing and disseminating this analysis is to provide a perspective useful for regulators,

legislatures, utilities, DER providers, and industry stakeholders to consider as we transition to a cleaner, more

affordable and resilient grid. To that end, we offer the following recommendations:

Distributed energy resource cost/benefit analyses and associated regulatory proceedings should utilize the

expandedbenefitandcostcategories identified by the Public Utilities Commission of Nevada at a minimum,and ideally the full list of categories identified in this paper.

Regulators pursue opportunities to remove or mitigatetheutilityfinancialdisincentive that currently biases

decision-making against utilizing distributed energy resources, favoring utility-owned infrastructure instead.

Utilities should modernizegridplanningprocessesand utilize integrated distribution planning to fully leverage

distributed energy resources into grid design and operations.

Acknowledgements

We would like to thank the following academics and industry stakeholders who provided their peer review for this

paper. While we incorporated their input to every extent possible, we, SolarCity and the Natural Resources Defense

Council, are solely responsible for the information presented and the conclusions drawn in the report.

Mark Z. Jacobson, Ph.D. Joshua Eichman, Ph.D. Tim Yeskoo, M.S.

Professor of Civil & Environmental Engineering Visiting Scholar Ph.D. Candidate

Director of Atmosphere/Energy Program Department of Civil and Department of Civil and

Senior Fellow, Precourt Institute for Energy Environmental Engineering Environmental Engineering

Daniel Lashof, Ph.D. Virginia Lacy Michael ODoyle

Chief Operating Officer Principal, Electricity Practice Policy Analyst

NextGen Climate America, Inc. Rocky Mountain Institute Energy Innovation


4/19


I. Nevadas Distributed Energy Resources Benefit All Customers

This report first focuses on quantifying the benefits that rooftop solar and DERs can offer to all Nevadans, whether they

individually deploy such systems or not. We build upon existing cost/benefit methodologies which have already been

applied by industry leaders in Nevadawhile introducing updated methods for hard-to-quantify DER benefit categories that

are excluded from traditional analyses. In the following section we define and establish the historical context of our

methodology, with more details provided in the Appendix.

The Value of DERs within Nevada

In July 2014, the energy consulting firm Energy+Environmental Economics (E3) published a report for the Public Utilities

Commission of Nevada that evaluated the impacts of net energy metering in Nevada.8 The results were based upon input

from a diverse working group of stakeholders and an avoided cost model that parties used to determine the impact of net

energy metering from a range of stakeholder perspectives. This model was codified in a NevadaPublicTool, a spreadsheet-

based tool used to quantify the costs and benefits of NEM rooftop solar. While a variety of scenarios and timeframes were

explored in their analysis, E3 ultimately estimated a total net present value for 2004-2016 NEM systems to all Nevada utility

customers of $36 million during the systems lifetimes.9An E3 scenario focused on 2016

installations alone concluded that a net benefit of 1 cent was transferred to all utility

customers for every kWh of energy produced by solar customers.

Although the analysis improved the state of cost/benefit analyses in Nevada, the results

from E3s July 2014 report to the PUCN were incomplete. The E3 analysis omitted some

categories of avoided costs due to the complexity of valuing them, and rapid changes in

DER technologies over the past few years have expanded the set of benefits that DERs are

capable of providing. Therefore, in this report we expand upon the prior E3 work by

considering a fuller scope of benefits and costs, updating the DER valuation framework to

be consistent with the PUCNs Order,10

and incorporating newer benefit categories that

have been overlooked. Furthermore, all underlying assumptions are refreshed with the

latest data available to reflect current conditions and expectations of the future, including

lower natural gas prices and renewable energy certificate values from utility-scale solar.

Analysis Scope and Assumed Scenarios

This report evaluates the electric system and environmental benefits of continued DER deployment, the associated customer

costs, and the resulting net cost/benefit to all utility customers in Nevada. This perspective, which is often called the

Ratepayer Impact Measure (RIM) calculation, quantifies the impact of DER adoption on all utility customers, including

customers who do not own or deploy DERs on their own properties.

DescriptionofAnalysisScope

Net Benefit or Cost = Total Benefits to All Utility CustomersTotal Costs to All Utility Customers

Total Benefits The benefits that accrue to all utility customers from DER deployment.

Total Costs The costs that all utility customers incur as a result of DER deployment.

Net Benefits or

Costs

The value to DER and non-DER customers of continued deployment of

DERs, defined as the benefits less the costs.

The benefits and costs of DERs are dependent on the types and quantities of DERs deployed. This analysis specifies two DER

deployment scenarios to illustrate reasonable potential deployments of DERs over the near- and medium-term in Nevada,

which are informed by solar deployment statistics to date in Nevada as well as other geographies in the United States. The

first scenario focuses on the near-term (2017-2019) period and assumes continued deployment of net energy metered

rooftop solar paired with smart inverters, which will become standard with most rooftop solar installations after the

forthcoming finalization of the IEEE 1547 standard and accompanying inverter certifications (expected in 2016). For the

medium-term (2020-2022), we consider a scenario whereby new DER customers are required to adopt a time-of-use rate as

a condition of receiving NEM billing credits. In this second scenario, we assume that customers deploy a suite of DERs,

including rooftop solar, smart inverters, batteries, and load control devices.

InJuly2014,E3

estimatedatotalnet

presentvaluebenefitof2004-2016NEM

systemstonon-

participating

customersof$36

millionduringthe

systemslifetimes.7


5/19


DERDeploymentScenarios

Timeframe DERs Deployed Rate Evaluation

2017-2019 Solar + Smart Inverters Net Energy MeteringQuantitative

and Qualitative

2020-2022Solar + Smart Inverters +

Storage + Load Control

Net Energy Metering with

Mandatory Time-of-Use RatesQualitative

DER benefits and costs also depend on overall DER penetration levels. Some benefits such as capacity valuemay exhibit

diminishing returns at higher penetration levels, while other benefits such as resiliencymay be more readily captured at

higher penetration levels. Similarly, lower DER penetration generally triggers fewer integration costs, while higher

penetration may lead to increased investment. As depicted in the following chart, NEM PV penetration levels vary across the

U.S.11

Most states have verylow (


6/19


QuantifiedCost/BenefitCategoriesinNevada(2014-2016)15

Categories

E3 NEM

Study

(July 2014)

PUCN NEM

Order

(Fall 2015)

PUCN NEM

Decision

(Dec 2015)

PUCN Order:

Sierra Pac IRP

(April 2016)

Study Scope

(May 2016)

Benefits

Energy

Line Losses

Generation Capacity

Ancillary Services

Transmission Capacity

Distribution Capacity

CO2Regulatory Price

Voltage Support

Criteria Pollutants

Fuel Hedging / Diversity

Environmental Externalities

Costs

Utility Administration

Utility Integration

Participant Bill Savings

To quantify each benefit and cost category, we utilize the Nevada Public Tool to the greatest extent possible. This

spreadsheet-based cost/benefit model was created in 2014 by E3 based on input from the multi-stakeholder group convened

by the Public Utilities Commission of Nevada. In performing our analysis, we update all relevant assumptions in the E3 tool

with the most up-to-date data available. For the few categories that could not be quantified directly with the E3 tool, we

make conservative methodological choices in an attempt to estimate all relevant categories identified by the PUCN. Note

that we exclude Fuel Hedging/Diversity from our analysis given the lack of fuel hedging data available in Nevada. All data

inputs and methodological updates are discussed in the following section and further detailed in the Appendix.

A. Benefits Categories Quantified in This Report

In the following sections, E3's original valuation methodology is discussed alongside our updates to data and assumptions as

performed in May 2016, as well as the directional impact of our updates versus the original E3 analysis. While we attempt toensure that our updates reflect current market dynamics, our ability to update the Nevada Public Tool is sometimes

constrained due to lack of access to confidential underlying data. For example, hourly production cost results are not publicly

available within the NevadaPublicTool, which limits some of our updates to the original E3 methodology.

Energy

The energy category reflects an estimate of the hourly marginal wholesale value of that energy that is avoided by distributed

generation. Hourly wholesale values are based on production simulation runs from NV Energys 2013 IRP. These simulations

produced energy prices for each utility from 2014 through 2043. By default, the energy prices include a carbon price

beginning in 2018, but are excluded from this category to drive clarity between energy and CO 2compliance costs.

May2016Updates: A major market development since the original E3 study is the dramatic drop in natural gas prices. Wereflect this drop within the NevadaPublicToolby deriving an annual negative multiplier on the energy avoided cost value.

This multiplier is derived by comparing historical gas forwards from the timeframe when the 2014 study was developed to

current gas forward curves from NYMEX. These negative multipliers are then applied to the annual energy avoided cost

values within the original E3 study. Specific yearly multipliers are shown in the Appendix.

DirectionalImpactofUpdates: These changes reduce the forecasted energy cost and thus the value of avoiding those costs.

On a levelized basis, this update reduces the energy avoided costs from 5.0 cents per kWh in the original study to 3.7 cents

per kWh in our updated analysis.


7/19


Energy Line Losses

The value of avoided line losses is meant to account for losses between the point where energy is generated and the point

where it is consumed. E3 calculates losses as a function of hourly load based on NVE Norths 2013 General Rate Case (GRC)

and NVE Souths 2011 GRC.

May2016Updates : We rely on E3s methodology, but apply the same set of annual adjustors that we applied to avoided

energy value. This adjustment is necessary since the value of avoiding losses is a function of underlying energy prices.

DirectionalImpactofUpdates: Similar to the energy category updates, these changes reduce the forecasted cost of energy

line losses associated with bulk system generation and thus the value of rooftop solar in avoiding those costs.

Generation Capacity

Avoided generation capacity is measured as the contribution of DERs towards meeting system capacity and reliability needs.

In years when NV Energy has a capacity surplus, this value is calculated as the fixed O&M cost of a natural gas combustion

turbine, which is assumed to be the least cost resource. After the year NVE would otherwise need to build new capacity (also

known as the resource balance year), the capacity cost is calculated as the net cost of building new generation capacity

above what can be earned in energy and ancillary service markets. After calculating the annual capacity value, the E3 model

attributes that value to individual hours using hourly Normalized Loss of Load Probability (LOLP) from NVEs most recent GRC.

May2016 Updates: E3s unmodified values are utilized. However, given the low avoided energy value assumptions, we

believe that avoided generation capacity would be higher in practice. Therefore, we contend that utilizing E3s base values is

conservative. See more detailed discussion of the conservative nature of this approach in the Appendix.

DirectionalImpactofUpdates : None.

Ancillary Services

Ancillary services requirements are often based on forecasted load, and these requirements can be lower to the extent that

load is reduced by DERs. E3 used estimates from NVE of total production costs and spinning reserve spending from 2014 to

2018 and found that spinning reserves represented 0.5% to 2% of total energy spending over those years. This percentage of

total energy costs is used as an approximation of the value of ancillary services.

May2016Updates: We rely on the E3 methodology, but apply the same set of annual adjustors that are applied to the

avoided energy value. While the value of ancillary services is not as directly tied to the underlying energy prices as line losses,

the opportunity cost of not participating in the energy market is often the basis for ancillary service payments. Furthermore,

E3s approximation of ancillary services value is derived based on a percentage of total energy production cost. For this

reason, adjusting for gas price in the same way is a reasonable approximation of the value of future ancillary services.


Transmission Capacity

An estimate of the cost of expanding transmission capacity to meet peak system loads drives the value of transmission

capacity avoided cost. Transmission cost is allocated to individual hours using the hourly Normalized Probability of Peak(POP) for the transmission system from NV Energys most recent GRCs.

May2016Updates:We relied on the E3 methodology and made no additional changes.



8/19



This category is defined as the cost of expanding distribution capacity to meet customer peak loads. For the original E3 study,

NV Energy provided average system-wide $/kW cost of distribution upgrades, which were then attributed to individual hours

using the Normalized Probability of Peak (POP) for the distribution system from NV Energys most recent GRCs. Distribution

Capacity was included in the E3 tool in this manner, but was excluded from the base scenario within the study based on input

from the multi-stakeholder advisory group. E3sdescription below details the rationale of this decision:

DistributionavoidedcostsisnotincludedinthebasecasebecauseNVEnergydistributionengineersdonotconsider

the intermittent outputofNEMsystems reliable enough to avoid theneed for distribution systemupgrades. In

reality, some portionof distribution upgrades could probably reliably defer some distribution upgrades, though

distributionplanningprocesseswouldneedtobemodifiedtoactuallycapturethedistributionvalue basedonour

assessment,NEMgenerationcouldbecomeanetbenefit toNevadawiththeinclusionofdistributionbenefits. 16

May 2016 Updates: In order to capture the avoided distribution costs that can materialize through enhanced planning

processes, our analysis includes distribution avoided costs in the same way that E3 did in their sensitivity case. We agree that

distribution avoided costs rely on improvements in utility distribution planning so as to properly recognize the potential of

DERs to avoid capital investments and operating expenses. That being said, such change in utility planning is feasible and

likely over the course of the useful life of these DER assets. Thus, we include distribution capacity benefits in this analysis.

Directional ImpactofUpdates: While there was no change to E3s quantification of the distribution value category, theinclusion of distribution capacity in the scope of our study increases the value of rooftop solar compared to E3s Base Case,

which excluded distribution capacity for the reasons described above.

CO2Regulatory Price

CO2emissions include the regulatory price of carbon emissions that are associated with fossil fuel combustion, which is based

on NVEs carbon price forecast and its hourly production-simulation runs from its 2013 IRP. The price forecast for CO2

allowances is based on NVEs estimate of compliance costs with the Clean Power Plan starting in 2019. The societal cost of

carbon is not captured in the regulatory price, and is instead captured as an externality under Environmental Costs.

May2016Updates: We do not change E3s underlying methodology based on NVEs IRP, but report the value separately to

remain consistent with the PUCNs recent Order that separate energy and CO2emissions into distinct categories.


Voltage Support

While E3 did not consider this category in their 2014 study, we introduce a methodology for calculating its value, which is

distinct from the distribution capacity avoided cost described above. Utilities must supply power to end-users within

industry-standards power quality standards. The range of allowable voltage, an aspect of power quality, is set by American

National Standards Institute (ANSI) standards. In practice, because of losses as power flows to the edge of the distribution

system, utilities generally over-supply voltage to customers, using engineering rules-of-thumb to ensure customers at the

end of the line have acceptable voltage. To address this inefficiency, utilities are increasingly deploying Conservation

Voltage Reduction (CVR) programs, a demand reduction and energy efficiency technique that reduces customer service

voltages in order to achieve a corresponding reduction in energy consumption. Better-dispersed voltage sensors allowutilities to see voltage in real-time and ensure customers receive the minimum amount of voltage necessary for safe and

efficient operation of electricity-consuming devices. These CVR programs are often implemented system-wide or on large

portions of a utilitys distribution grid in order to conserve energy, save customers on their energy bills, and reduce

greenhouse gas emissions, typically saving up to 4% of energy consumption on any distribution circuit.17

CVR programs typically control distribution voltage regulating equipment, changes to which affect all customers downstream

of any specific device. As such, CVR benefits in practice are limited by the lowest customer voltage in any voltage regulation

zone (often a portion of a distribution circuit), because dropping the voltage any further would violate ANSI standards. Since

smart inverters can increase or decrease the voltage at any individual location, DERs with smart inverters can be used to


9/19


more granularly control customer voltages where there are active CVR programs. For example, if the lowest customer

voltage in a utility voltage regulation zone were to be increased by 1 Volt via controlling a local smart inverter, the entire

voltage regulation zone could then be subsequently lowered another Volt, delivering substantially increased CVR benefits.

May2016Updates: Voltage and power quality support was not included in the E3 framework, but was included in the

PUCNs most recent directive for Sierra Pacifics IRP . Thus, we include a modeled result here to drive consistency and

recognize there are new value streams from the deployment of the latest technologies.

Based on analysis of SolarCity smart inverter field demonstration projects, the utilization of smart inverters in a CVR scheme

has the potential to yield another 0.4% of incremental energy consumption savings and greenhouse gas emissions

reductions.18

Nevada-specific distribution data would allow more accurate quantification of this category, although none is

publicly available. For the purposes of this analysis, we assume the grid operator will be able to realize the benefits of smart

inverters in 2017+ within an active CVR program. See the Appendix for a detailed discussion of methodology.

DirectionalImpactofUpdates : This category has a positive impact on the net benefit of smart inverter-connected DERs.

Environmental Externalities

Environmental costs include externalities that impact land use and water use, among others, but this report only focuses on

capturing the social cost of carbon. Environmental cost values are often difficult to quantify but are important from a long-

term policy perspective, since all customers are members of society.

May2016Updates : E3 did not include the social cost of carbon in its CO 2 cost, so we include the difference between the

social cost of carbon and regulatory price of carbon from NVEs IRP production cost simulations in Environmental

Externalities. The regulatory price of carbon is already reflected in the CO2 cost category. By only capturing the difference

between social and regulatory cost of carbon in this category, we ensure there is no double counting of the social benefit of

carbon reductions. The social cost of carbon is assumed to be the Environmental Protection Agencys 2015 social cost of

carbon with a 3% average societal discount rate, which is $36/metric ton.19

In reality, the social cost of carbon is unknown

and evolving constantly with improved understanding of the impacts of climate change. The latest published numbers for the

social cost of carbon are significantly higher. For example, a peer-reviewed study from 2015 in the academic journal Energy&

EnvironmentalScience focused on state-level impacts, estimating a social cost of $500/metric ton in Nevada that costs the

state $20.9 billion per year in 2050, or approximately 12.9 cents/kWh in 2013 dollars when divided by the states end-use

energy in all sectors.20

We highlight these peer-reviewed findings to draw attention to the upper range of the academic

literature, but do not rely on these numbers in this analysis, opting to use EPAs more conservative mid-range value.

DirectionalImpactofUpdates: In this analysis, we identify Environmental Externalities as societal benefits and separate these

benefits from the base avoided costs net benefit quantification. However, including the social cost of carbon associated with

fossil fuel combustion increases the value of rooftop solar in the societal benefits perspective.

Criteria Pollutants

This category assesses health impacts from criteria pollutants, including premature mortality and respiratory illness costs.

May2016Updates: We rely on the E3 methodology to quantify this value, which is based directly on NV Energys 2013 IRP

that included an estimate of the monetary health net benefits of avoiding fossil fuel combustion, which was approximately

0.1 cents/kWh. Similar to the social cost of carbon, however, a recent academic study of the health impacts and costs ofcriteria pollutants suggests this number is significantly underestimated. While we do not use these higher estimates in our

analysis, we note that more up-to-date studies based on detailed costs based on real health impact data for the state of

Nevada found significantly higher costs associated with criteria pollutants, estimating an annual cost to the state of $8.3

billion per year, or 5.1 cents/kWh when applied to the states end -user energy in all sectors.21



10/19


B. Costs

As presented above, distributed resources offer significant customer benefits; however, these benefits are not available

without incurring incremental costs to enable their deployment. In order to quantify the net societal benefit of DERs, these

costs must be subtracted from the benefits. Costs for distributed energy resources include utility integration of variable

energy resources, utility program management, and participant bill savings.

Utility Integration and Interconnection Costs

The utility forecasts additional operational costs when it acts to adjust to sudden changes in renewable output, referred to as

integration costs. These costs typically fall into increases in regulation reserve requirements, load following reserve

requirements, and other ancillary services. E3 conducted a literature review and selected an integration cost adder of

$2/MWh, based on the current low penetration of intermittent renewable energy within Nevada compared to other states.

May2016Updates : We relied on the E3 methodology and made no additional changes.


Utility Administration Costs

Program costs are the costs to the utility of implementing and maintaining the NEM program. NV Energys program costsinclude a one-time cost associated with installing a bi-directional meter, as well as ongoing annual administrative expenses.

May2016Updates : We relied on the E3 methodology and made no additional changes.



Given the utilitys regulated guarantee to recover the costs of prudent investments, NEM customer bill savings are treated as

a cost in cost/benefit analyses. Bill savings are the difference between what a NEM customers bill would have been without

PV and the same customers bill with PV. E3 developed a calculator to quantify this cost.

May2016Updates: E3s bill calculator was updated to reflect 2016 rates, which are lower than 2014 rates . Based on todays

rates, a typical NEM customer would save 9.5 cents per kWh of solar production. Rates were assumed to escalate at 0.5% per

year through 2020, as estimated by NVE in their 2013 IRP. Beyond 2020, E3 created two scenarios: one that continued the

0.5% escalation rate for the entire forecast period, and one that increased the rate to 1.4% per year, driven by a gas price

forecast which escalated at 3.5%. Given the decrease over the past two years in gas prices and forwards, we use E3s lower

estimate of utility rate escalation through the 2017-2041 period.

DirectionalImpactofUpdates: By reducing the participant bill savings, the cost of NEM decreases from the non-participant

perspective, increasing the net benefit of rooftop solar under the ratepayer impact measure (RIM) test.

C. Results

In this section, we compute the results for the cost and benefit categories, discuss the significance of these results, and

identify methodological critiques and areas for future analysis.

Discussion of Results

In the table below, we show the results of both a limited scope and full scope sensitivity for rooftop solar deployed today.

The full scope includes the societal cost of carbon, an externality not directly reflected in utility rates, and is an appropriate

evaluation lens from a policymaker perspective. The limited scope provides a more conservative evaluation that focuses only

on categories explicitly in the utility cost function, which are directly passed through to customers in utility rates.


11/19


AnnualNetBenefitsof2017-2019NEMRooftopSolarDeployments

Type Benefit and Cost CategoryNet Benefits

(Excl. Environmental)

Net Benefits

+ Environmental

2015 Levelized cents/kWh

Benefits

Energy 3.7 Same

Line Losses 0.4 Same

Generation Capacity 2.6 SameAncillary Services 0.1 Same

Transmission & Distribution Capacity 2.8 Same

CO2Regulatory Price 0.9 Same

Voltage Support 0.9 Same

Criteria Pollutants Not included 0.1*

Environmental Externalities Not included 1.7*

Total Benefits 11.4 13.2

Costs

Program Costs 0.1 Same

Integration Costs 0.2 Same

Participant Bill Savings 9.5 Same

Total Costs 9.8 9.8

Total Net Benefits 1.6 cents/kWh 3.4 cents/kWh

*More recent academic studies estimate the criteria pollutants cost to be up to 5 cents/kWh22

and the

social cost of carbon to be as high as 12 cents/kWh in Nevada.23

Our results demonstrate that there is a net benefit from rooftop solar production. At the low end, the net benefit is 1.6 cents

per kWh, which only accounts for values that can be directly realized by the utility. At the high end, we incorporate

externalities such as the social cost of carbon and the health impact of criteria pollutants and find a net benefit of 3.4 cents

per kWh. Within this framework, a net benefit means that each additional rooftop PV installation in Nevada can provide

positive value to all Nevadan utility customers whether they own rooftop solar and DERs or not. In contrast, a net cost

would indicate that NEM customers utility bill savings exceed the costs their systems help avoid, effectively shifting

responsibility of covering the utilitys revenue requirement to non-participants.

These results are significant as they demonstrate that continued deployment of rooftop PV under NEM can benefit all

Nevadan customers when the full range of benefits are taken into account. Assessing this full set of ongoing costs and

benefits from the roughly 257 megawatts (MW) of existing NEM solar systems already deployed or in the pipeline in

Nevada,24

we calculate a net value of $7-14 million per year to all Nevadan utility customers. These benefits will increase over

time as additional DER technologies are deployed alongside rooftop solar, a topic explored in the following sections.

Methodological Critiques

Net benefit tests provide estimates for policymakers, regulators and other decision makers to evaluate potential policy and

their impacts. However, these studies are necessarily simplified given uncertainty about future conditions that are

endogenous variables in the models, and variation in location-specific grid benefits and costs. Additionally, some categories

are easier to quantify given observable prices and input assumptions (e.g. energy), while others are more difficult as they

involve allocating fixed costs to certain times (e.g. capacity). Other categories are difficult to quantify because their values are

not precisely known (e.g. environmental externalities).

We acknowledge these uncertainties are real and that no model will perfectly predict future benefits and costs. However,

while the application of these net benefit tests to organic adoption of DERs requires establishing methodologies for new

categories and modifying methodologies for existing categories, the challenge of quantifying costs and benefits of an

uncertain future is not new. Since its inception, the power industry has grappled with how to value long-term infrastructure

investments in an uncertain and constantly changing grid. Ultimately, the true net benefit of any resource can only be

determined in hindsight. This uncertainty is normal and should not be paralyzing. In the face of this uncertainty, we believe

regulators should rely on transparent analyses that consider all the benefits and costs to provide guideposts on setting policy.


12/19


Impact of Storage and Load Control on Results

In order to better evaluate the future potential of DERs, we next considered how the net benefit framework would be

impacted by a fuller suite of technology deployments in the 2020-2022 period, including solar, smart inverters, energy

storage, controllable thermostats and other controllable loads. This scenario would be relevant to policymakers in a future

scenario that requires new DER customers to adopt a time-of-use rate as a condition of receiving NEM billing credits.

Given the less deterministic nature of operating energy storage and load control devices compared to rooftop solar, we

refrain from assigning values to specific categories that would be speculative without access to more granular data on system

needs and prices. Instead, we highlight categories of benefits that would be most impacted by the adoption of energy

storage, controllable thermostats and other controllable loads by customers. These flexible and dispatchable assets offer

incremental benefits to the grid, primarily in the form of capacity to the bulk and distribution systems, by shifting demand

and generation to the highest value periods.

QualitativeImpactofStorageandLoadControlonBenefitsof2020-2022NEMDeployments

Benefit

Category

Directional

Impact*Description

Energy +

Shifting consumption or generation from low value periods to high value periods

increases energy value, which would be done when the spread exceeds the efficiency

losses of the energy storage technology.Line Losses + Similar to energy.

Generation Capacity ++By providing storage capacity or load shift capacity during peak generation periods, the

generation capacity value would increase substantially.

Ancillary Services ++

Energy storage and controllable loads provide greater dispatchability than solar and

thus could provide ancillary services directly, or be operated in ways to mitigate the

need for ancillary services procurement.

Transmission

Capacity++

By providing storage capacity or load shift capacity during peak transmission periods,

the transmission capacity value would increase substantially.

Distribution Capacity ++By providing storage capacity or load shift capacity during peak distribution loading

periods, the distribution capacity value would increase substantially.

CO2Regulatory Price +By reducing demand during peak periods, less energy production from conventional

generation is needed and the associated CO2 from fossil fuel combustion is reduced.

Voltage Support +Energy storage and load control could provide additional flexibility to manage voltage

at the local level, as well as real and reactive power dispatchability to manage voltage.

Criteria Pollutants + Similar to CO2Regulatory Price.

Environmental

Externalities+ Similar to CO2Regulatory Price.

Total Benefits ++The addition of energy storage and load control will materially increase the level of

benefits delivered by DER customers.

*Legend

+Positive impact expected, but likely marginal

++Significant positive impact expected

Based on current forecasts, and with the proper price signals in place, customers choosing to adopt storage and load control

in the 2020-2022 timeframe will be able to deliver materially higher levels of benefits to all utility customers than is capabletoday. Further evaluation of the increased value associated with storage and load control adoption is needed going forward,

including analysis that incorporates more granular system level data. While we have not attempted to precisely quantify this

additional benefit in this paper, we suggest the capabilities of these technologies paired with the aggressive cost declines

forecasted offers a significant opportunity for the state that should not be ignored when setting pathway policies.

State-wide Impact

To better understand the potential benefits to Nevada as a whole, we apply these levelized benefits in cents per killowatt-

hour to existing NEM PV deployments and a future deployment scenario that assumes NEM is extended through 2019.


13/19


Building off of Nevada NEM PV deployment statistics, we assume annual NEM PV installations of 100 MW during this period,

resulting in an additional 300 MW of distributed solar across 50,000 Nevada homes.25

This adoption rate would result in

roughly 557 MW of capacity installed across the state by the end of 2019.26

Each of the net benefit values described earlier

are then applied to the penetration assumption in order to provide a simplified translation of the potential state-wide.

State-wideImpactSensitivities

Category Existing NEM PV Systems (Q1 2016) Future NEM PV Systems (2017-2019)

NetBenefit(Excl.Environmental)

NetBenefit+Environmental

NetBenefit(Excl.Environmental)

NetBenefit+Environmental

Total MWDC 257 MW27

557 MW

KWh/KWDC-year 1,600

Levelized Benefit 1.6 c/kWh 3.4 c/kWh 1.6 c/kWh 3.4 c/kWh

Annual Net Benefits $7M $14M $14M $30M

Lifetime Present Value $76M $163M $166M $353M

Numbersroundedto$milliondollars

As expected, the range of levelized net benefits results in a range of state-wide benefits; however, all scenarios demonstrate

positive net benefit. When estimating the value of current NEM systems in the ground today, there is a net value shift of $7M

per year in direct utility avoided costs to all customers, and conservatively $14M per year when considering externalities. In

the future scenario that assumes 300 MW of additional deployment, the limited scope of direct utility avoided costs createsan annual net benefit of $14M/year for customers, equivalent to $166M in lifetime present value using a 7% discount rate

and 25 year module production life. The externality scope returns a $30M/year net benefit, suggesting a $353M lifetime net

benefit could be generated for Nevada today by encouraging the continued deployment of rooftop solar through NEM.

These state-wide estimates, while simplified extrapolations, are significant because they provide an estimate for the public of

how much NEM systems can reduce all customers utility bills and deliver additional societal benefits. While these additional

societal benefits are not directly reflected in utility bills, they impact all customers as members of society. Furthermore, to

the extent additional DERs like energy storage and load control can be cost-effectively deployed alongside these systems in

the future under TOU rates, the net benefit to the state would be significantly higher for the reasons identified earlier,

including greater capacity benefit at the bulk and distribution system level. A more rigorous forward-looking state-wide

estimate could be conducted with a dynamic public model that captures the changing levels of benefits and costs as DER

penetration increases. This type of modeling would require better access to utility forecasts and cost data, but becomes

significant only at higher penetration levels of rooftop solar akin to Hawaii and California.

D. Additional Benefit and Cost Categories Not Quantified in This Report

In this section, we qualitatively explore a series of additional benefits and costs that are more difficult to quantify for a variety

of reasons. In some cases, utility data required to quantify these categories is not publicly available, or robust methodologies

are still emerging. In other cases, the value or cost is known to be non-zero but cannot yet be explicitly quantified. While

these categories are not included in our net benefit results, they represent significant, real sources of additional net benefit

to Nevadan customers. These categories should continue to be studied to better quantify the potential benefit of DERs.

Benefit Categories

Fuel Diversity and Real-Option Value

The PUCN recently identified fuel diversity as a benefit category that should be quantified in Sierra Pacifics upcoming IRP.28

DERs reduce Nevadas reliance on fossil fuels and customersexposure to the risk of future price spikes. A related and equally

important benefit from DERs deployed in smaller building blocks and with shorter lead times is the real-option value they

offer planners by delaying deployment of large capital investments until forecast uncertainty is smaller. That is, strategic

deployment of DERs effectively buys time for planners and reduces the probability of a mistake due to forecast error. These

benefits can be captured by incorporating DERs into planning processes. While the cost of volatility in extreme conditions

and the value of real options can be significant, it is difficult to quantify this value without the requisite information, including

historical loading data, historical forecasts and forecast error, and the utilities long-term project forecasts.


14/19


Resiliency and Reliability

Some DERs, such as energy storage, can provide backup power to critical loads, improving customer reliability during routine

outages and resiliency during major outages. The rapidly growing penetration of batteries combined with PV deployments

will reduce the frequency and duration of customer outages and provide sustained power for critical devices. Improved

reliability and resiliency have been the goal of significant utility investments, including feeder reconductoring and distribution

automation programs such as fault location, isolation, and service restoration (FLISR). Battery deployments throughout the

distribution system can eventually reduce utility reliability and resiliency investments.

Market Price Suppression Effect

In general, as electric demand increases the market price of electricity increases, as higher marginal cost power plants are

turned on. DERs can provide value by reducing the electric demand in the market and avoiding higher marginal cost

production, leading to a reduction in the market clearing price for all consumers of electricity. Called the Demand-Reduction

Induced Price Effect (DRIPE), it is well-recognized in the energy efficiency field,29

and was recently validated in the U.S.

Supreme Courts decision to uphold FERC Order 745, which noted that operators accept demand response bids if and only if

they bring the wholesale rate down by displacing higher-priced generation. Notably, the Court emphasized that when this

occurs (most often in peak periods), the easing of pressure on the grid, and the avoidance of service problems, further

contributes to lower charges.30

As a behind-the-meter resource, rooftop solar impacts wholesale markets in a similar way to

demand response, effectively reducing demand and thus clearing prices for all resources during solar production hours.

While the avoided cost model considers the avoided cost of future energy prices, it does not consider the benefits ofreducing market clearing prices from what they would have been in the absence of solar. Shifting that solar production to

peak demand periods with storage or load control provides an even greater effect.

Equipment Life Extension

Through a combination of local generation, load shifting, and energy efficiency improvements, DERs reduce the net load at

individual customer premises. A portfolio of optimized DERs dispersed across a distribution circuit can, in turn, reduce the

net load for all equipment along that particular circuit, which has equipment benefits beyond those already discussed. By

operating the distribution equipment, such as substation transformers, at reduced loading on the distribution circuits with

DERs portfolios, the distribution equipment will benefit from increased equipment life and higher operational efficiency.

Traditionally, distribution equipment may operate at very high loading during periods of peak demand, abnormalconfiguration, or emergency operation. When the nominal rating of equipment is exceeded, the equipment suffers from

degradation and reduction in operational life. The more frequently equipment is overloaded, the more degradation occurs.

Furthermore, the efficiency of transformers and other grid equipment falls as they are required to perform under increased

load: the higher the overload, the larger the losses in efficiency. Utilities can have significant proportions of grid equipment

that regularly operate in this overloaded fashion. DERs ability to reduce peak and average load on distribution equipment

therefore leads to a reduction in the detrimental operation of the equipment and an increase in useful life. The larger the

peak load reduction, the larger the life extension and efficiency benefits.

Cost Categories

Change Management

Improvements to grid planning to incorporate DERs have been incremental in their progress but not without reason. The

amount of change necessary to capture the full benefits of DERs is significant, and such change can be challenging to

implement, both at the regulatory and utility levels. Beyond the technical integration and program administration costs that

are explicitly quantified in this report, the cost of implementing change to grid planning and utility processes is unknown yet

real. However, while these changes may be difficult, they are necessary in order to modernize the grid and benefit society.


15/19


III. Barriers to Realizing the Value of Distributed Energy Resources

The previous section demonstrated how Nevada could generate savings for all utility customers from DER deployments in the

2017-2022 timeperiod. Despite this potential value from embracing DERs, utilities face institutional barriers to realizing these

benefits. Reducing the size of a utilitys ratebase its wires-related investments cuts directly into shareholder profits.

Therefore, expecting utilities to proactively integrate DERs into grid planning, when doing so has the potential to adversely

impact shareholder earnings, is a structurally flawed approach. It will be difficult to capture the potential benefits of DERs

until the grid planners financial disincentive to the deployment of DERs is neutralized. These natural tensions are furtherexplored in this section, culminating in recommended next steps to capture the full potential of DERs.

Utility Financial Disincentives are a Barrier to Capturing DER Benefits

The current utility regulatory model, which was designed around a monopoly utility controlling all aspects of grid design,

investment and operation, is outdated and unsuited for todays reality of consumers installing DERs that can benefit the grid.

Therefore, industry fundamentals need to be reexamined, and the utility incentive model is a key place to start.

Electric utilities are generally regulated under a cost plus model, which compensates utilities with an authorized rate of

return on prudent capital investments made to provide electricity services. While this model makes sense when faced with a

regulated firm operating in a natural monopoly, it is well known to result in a number of economic inefficiencies, as perhaps

best analyzed by Jean Tirole in his Nobel Prize winning work on market power and regulation.31

Additionally, utilities in

vertically integrated regulatory environments, such as is the case in Nevada, also earn an authorized rate of return on the

amount of energy consumed by their customers. As such, utilities are financially incented to increase the amount of energy

consumed by customers, a facet of their business model that is at odds with societys energy efficiency objectives.

One fundamental problem resulting from the utility cost plus and vertically integrated regulatory model is that utilities are

generally discouraged from utilizing infrastructure resources that are not owned by the utility, even if competitive

alternatives could deliver improved levels of service at a lower cost to customers. Beyond regulatory oversight, this model

contains no inherent downward economic pressure on the size of the utility rate base, or the cumulative amount of assets

upon which the utility earns a rate of return. As customers continue to adopt distributed resources that are capable of

providing grid services, the utilitys fundamental financial incentive to build more utility-owned infrastructure in order to

profit more may come into conflict with customers interests.

Traditional Grid Planning Focuses on Traditional Assets

Grid planning for infrastructure investments has historically focused on installing capital intensive, large physical assets that

provide service over a wide geographic region and long time period. This structure evolved naturally from the original

electricity industry, characterized by natural monopolies, centralized generation, long infrastructure lead times, high capital

costs with significant economies of scale, and a concentration of technical know-how within the utility.

Many of these characteristics have changed with the technological and market advancement in physical infrastructure

optionssuch as DER portfolios that can meet grid needsand increased sophistication of grid design and operational tools.

However, grid planning still remains focused on utilizing traditional infrastructure without harnessing the increasing

availability of DERs, to the detriment of efficient grid design. Utilizing DER solutions will require a shift from traditional

planning approaches, beginning with increased access to the underlying planning and operational data needed to enable

DERs to operate most effectively in concert with the grid.

Opening the door to DER solutions in grid planning provides the obvious benefit of a new suite of technological options for

grid planners. In some cases, DERs may simply be lower cost on a $/kW basis or more effective at meeting the identified grid

need than the conventional solutions, making them an obvious choice. DERs, however, also offer an advantage over

conventional options due to their targeted and flexible nature, which fundamentally changes the paradigm of grid planning.

Status quo grid planning relies on deploying bulky infrastructure solutions to address forecasts of incremental, near-term grid

needs. In many cases, conventional solutions are 15X larger than the near-term grid need that is driving the actual

deployment of the infrastructure.32

This reality of grid planning creates two major opportunities for DERs to deliver better

value to customers than conventional solutions: 1) utilizing small and targeted solutions, and 2) leveraging DER flexibility.


16/19


Grid planning can be modernized by utilizing IntegratedDistributionPlanning, an

approach to meeting grid needs while at the same time expanding customer

choice to utilize DERs to manage their own energy. Integrated Distribution

Planning encourages the incorporation of DERs into every aspect of grid planning.

The framework, as depicted in the adjacent figure, expedites DER

interconnections, integrates DERs into grid planning, sources DER portfolios to

meet grid needs, and ensures data transparency for key planning and grid

information. Ultimately, the approach reduces overall system costs, increases grid

reliability and resiliency, and fosters customer engagement.

Distributed Solar VersusUtility-Scale Solar Obscures the Value of Both

The comparison of DERs to utility-scale resources to deliver benefits has been a topic of recent interest from policymakers

considering the relative merits of each. Each type of deployment has its unique benefits and costs, yet both widely facilitate a

future focused on decreasing carbon emissions. However, while we understand the tendency to compare rooftop solar to

utility-scale solar, we suggest the comparison is often an apples-to-oranges exercise, and therefore can be a distraction.

Rooftop solar is sited at the point of customer service, which enables it to deliver a much broader set of benefits than central

resources connected to the bulk transmission system. For example, utility-scale resources can provide energy and system

capacity, but require significant transmission system infrastructure to enable the transport of energy produced. In contrast,

behind-the-meter resources offset bulk system energy production, the associated losses that are associated withtransmitting energy, transmission and distribution capacity, and voltage benefits that can increase the efficiency of the grid

for all customers. While central generation can deliver significant economies of scale, these fundamental differences in the

services being provided by the two resources requires very careful consideration that is beyond the scope of this analysis.

More holistically, DERs have the potential to fundamentally change the way the system is planned and operated. DERs can

increase the resiliency of the grid by reducing the reliance on centralized, single-point-of-failure assets through the local

delivery of power during grid outages. Furthermore, DERs can reduce the heightened risk of stranded assets associated with

massive infrastructure bets that are built upon forecasts of a future that is changing rapidly. Utilizing smaller infrastructure

building blocks with shorter lead times creates significant real option value that is unavailable to grid planners today.

A focus on utility-scale solar versus rooftop solar ignores the broader context under which renewables are deployed.

Meeting our societal goals to radically decarbonize the electricity sector in order to avoid the catastrophic impacts from

climate change will require deploying all cost-effective solutions capable of delivering reductions in carbon emissions.

IV. Conclusion

In this report, we explored the capability of distributed energy resources to provide benefits to all utility customers in

Nevada. The opportunity associated with proactively leveraging DERs in the near-term is significant, creating net benefits for

all utility customers, both those with DERs and those without.

The impediments to capturing these benefits in practice remain significant. Utility incentives must be realigned to ensure

that the full potential of DERs can be realized. Shifting the utilitys core financial incentive from its current focus of build

more and sell more to profit more towards a future state where the utility is financially indifferent between sourcing utility-

owned and customer-driven solutions would neutralize bias in the utility decision-making process. In parallel, grid planning

must also be updated to incorporate DERs into every aspect of grid design and operations, and the process itself must

become radically more transparent with greater access to and standardization of data.

The benefits of achieving these changes would be real and large. The greater flexibility that DERs can provide to grid planners

and operators can lead to greater reliability and resiliency. Similarly, the more targeted and incremental deployments of

DERs can increase efficiency and affordability. Finally, utilities that can successfully modernize planning would be able to fully

take advantage of the assets their customers adopt. As articulated in this report, all Nevadans would benefit from continuing

this discussion and taking action to fully leverage distributed energy resources to benefit the grid and its customers.


17/19


Endnotes

1E3 / Nevada Public Utilities Commission, Nevada Net Energy Metering Impacts Evaluation, July 2014.

2Nevada Public Utilities Commission Procedural Order, Docket No. 16-07001, pp. 2-3 (April 8, 2016).

3Nevada Public Utilities Commission Order, Docket No. 15-07041 and No. 15-07042, pp. 65-66 (December 23, 2016).

4Considerations for Managing a NEM 1 Queue, Jesse Murray, NV Energy, New Energy Task Force: Technical Advisory Committee on

Distributed Generation and Storage, May 18, 2016.5

Ibid.6Integrated Distribution Planning: A holistic approach to meeting grid needs and expanding customer choice by unlocking the benefits of

distributed energy resources, SolarCity, September 2015.7E3 / Nevada Public Utilities Commission, Nevada Net Energy Metering Impacts Evaluation, July 2014.

8 Ibid.9Ibid.

10Nevada Public Utilities Commission Order, Docket No. 15-07041 and No. 15-07042 (December 23, 2016).

11U.S. Energy Information Agency (EIA), July 2015 preliminary data.

12As of March 31

st, 2016, 190 MW of NEM PV were installed and another 67 MW were in the pipeline, for a total of 257 MW (Overview of

Nevadas Current NEM Customers, Jesse Murray, NV Energy, New Energy Task Force: Technical Advisory Committee on Distributed

Generation and Storage, April 14, 2016). NVE forecasts peak system load of 7,639 MW in its most recent Integrated Resource Plans (Docket

No. 13-07 and Docket No. 14-05). As such, NEM capacity as a percentage of peak system load is roughly 3.4%.13

Nevada Public Utilities Commission Order, Docket No. 15-07041 and No. 15-07042 (December 23, 2016).14

Nevada Public Utilities Commission Procedural Order, Docket No. 16-07001, pp. 2-3 (April 8, 2016).15

"TheNEMratepayers'netexcessenergyissetatavaluethatcapturesthevariablesthatmakeupthepossiblevalue/detrimentofNEMduringeachgeneralratecase.TheCommissionwillsetavalueduringeachfuturegeneralratecasebyusingamethodologythatconsiders

boththe positive andnegativeeffectsof: 1) avoidedenergy;2) energy losses/line losses; 3)avoidedcapacity; 4) ancillary services; 5)

transmissionanddistributioncapacity;6)avoidedcriteriapollutantcosts;7)avoidedcarbondioxideemissioncost;8)fuelhedging;9)utility

integrationandinterconnectioncosts;10)utilityadministrationcosts;and11)environmentalcosts."16

E3 / Nevada Public Utilities Commission, Nevada Net Energy Metering Impacts Evaluation, July 2014.17

Evaluation of Conservation Voltage Reduction on a National Level, Schneider, Fuller, Tuffner, and Singh, Pacific Northwest National

Laboratory (PNNL) for the US Department of Energy (DOE), July 2010.

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19596.pdf.18

Results based on analysis of SolarCity field demonstration project that utilized 150 distributed smart inverters to provide reactive power

and voltage support in collaboration with an investor-owned utility (2016).19

https://www3.epa.gov/climatechange/EPAactivities/economics/scc.html.20

100% clean and renewable wind, water and sunlight (WWS) all-sector energy roadmaps for the 50 United States, Mark Z. Jacobson,

Mark A. Delucchi, Guillaume Bazouin, Zack A. F. Bauer, Christa C. Heavey, Emma Fisher, Sean B. Morris, Diniana J. Y. Piekutowski, Taylor A.

Vencill and Tim W. Yeskoo, Energy & Environmental Science, (May 2015).21Ibid.

22

Ibid.23

Ibid.24

Overview of Nevadas Current NEM Customers, NV Energy, April 14, 2016.25

Assuming average solar array size of 6kW per home: 300,000 kW / 6 kW per home = 50,000 homes.26

As of March 31st

, 2016, 190 MW of NEM PV were installed and another 67 MW were in the pipeline, for a total of 257 MW (Overview of

Nevadas Current NEM Customers, NV Energy, April 2016). Adding 300 MW of additional PV would result in roughly 557 MW deployed.27

Ibid.28

Nevada Public Utilities Commission Procedural Order, Docket No. 16-07001, pp. 2-3 (April 8, 2016).29

https://www4.eere.energy.gov/seeaction/publication/state-approaches-demand-reduction-induced-price-effects-examining-how-

energy-efficiency.30

Opinion of the U.S. Supreme Court, FERC v. Electric Power Supply Association et al., January 2016, p. 16.31

A Theory of Incentives in Procurement and Regulation,Jean-Jacques Laffont andJean Tirole,MIT Press, 1993.323232

According to PG&Es 2017 GRC Workpaper 13-11, 1,400 MWs of capacity expansions could be linked to 114 MW of deficiency.
https://mitpress.mit.edu/authors/jean-jacques-laffonthttps://mitpress.mit.edu/authors/jean-jacques-laffonthttps://mitpress.mit.edu/authors/jean-tirolehttps://mitpress.mit.edu/authors/jean-tirolehttps://mitpress.mit.edu/authors/jean-jacques-laffont


18/19


Appendix A

In an effort to make these results as transparent as possible, we provide the following details to enable other parties to recreate our results

themselves. We attempt to stay within the confines of E3s NevadaPublicToolin order to make our analysis transparent and accessible,

but have sought to incorporate the best information available. In some cases, this has required that we distill complicated market effects

into assumptions that fit into the model mechanics embedded within the NevadaPublicTool. In cases where we have attempted to distill

these complicated effects, we err on the side of utilizing assumptions that we believe result in conservative valuations of DER benefits.

A. Steps To Update E3s Nevada NEM Bill Calculator:

To estimate bill savings going forward, we updated the rates in the NevadaNEMBillCalculatorbased on the currently applicable tariffs:

Sierra Pacific Power (NV Energy North)

o https://www.nvenergy.com/company/rates/nnv/electric/schedules/images/Statement_of_Rates_Electric_North.pdf

Nevada Power Company (NV Energy South)

o https://www.nvenergy.com/company/rates/snv/schedules/images/StatementofRates.pdf

These tariffs were entered into E3s NevadaNEMBillCalculatormodel on the Rates tab. The output from this model (found in column F of

the Annual Bill Savings tab), is then pasted into the NevadaPublicToolon the Bill Savings Input tab in column G.

B. Steps To Update E3s Nevada Public Tool:


As noted above, one can paste the outputs from the Nevada NEM Bill Calculator into Column G of the Bill Savings Input tab in order to

incorporate the currently applicable tariffs. The other important assumption with respect to bill savings is the rate at which utility rates are

expected to increase. In NVEs 2013 IRP, rates were estimated to escalate at 0.5% per year through 2020. Past 2020, E3 created two

scenarios: one that continued that escalation rate for the entire forecast period, and one that increased the rate to 1.4% per year, driven

by a gas price forecast which escalated at 3.5%. Given the dramatic recent decrease in gas prices and gas price forwards, we use E3s lower

estimate of utility rate escalation through the entire 2017-2041 period, which we believe to be a conservative approach in regards to the

potential value of DERs. This assumption can be implemented on the User Inputs tab in Columns C and D, Rows 43-80.

Energy

For the remainder of 2016, the current monthly forwards are dramatically lower than the forwards from 2014 (40% lower on average). For

2017, the forwards are about 40% lower, dropping to ~35% lower through 2020, and dropping to ~25% by 2026 (the last year where

forwards are available). The following table contains the results of this comparative analysis of gas forward curves:

voided Energy djustment

Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026-2043

Adjustment -41% -30% -33% -35% -35% -34% -32% -31% -29% -27% -26%

These Avoided Energy Adjustment Factors were applied to the hard-coded values on the Avoided Costs tab. The appropriate multiplier for

each year was applied to Energy With Carbon, Energy Without Carbon, Losses, and Ancillary Services in Columns D through O. Because

these values are hard-coded in the original model, updating them in this way does not affect the functionality of the model. While E3 did

provide functionality on the User Inputs tab to apply a multiplier to specific avoided cost values, there is only the option to apply a single

value to each year. We sought to more accurately reflect the divergence in gas forward price curves by applying these annual factors.

Energy Losses

We relied on the E3 methodology, but applied the same set of annual adjustors that were applied to the avoided energy value. Thisadjustment was necessary since the value of avoiding losses is a function of the underlying energy prices.

Generation Capacity

There is a feedback loop between energy and capacity avoided cost values. On the margin, capacity prices represent the amount the

marginal unit would need to supplement energy market net revenues in order to stay in the market. As energy revenues decrease, the

plant would need to recover more through capacity payments to continue operating.

While we believe the capacity value should have a positive avoided cost adjustor in the NevadaPublicTool, we do not have sufficient

information about the underlying assumptions in the confidential version of E3s avoided cost model to accurately develop such a
https://www.nvenergy.com/company/rates/nnv/electric/schedules/images/Statement_of_Rates_Electric_North.pdfhttps://www.nvenergy.com/company/rates/snv/schedules/images/StatementofRates.pdfhttps://www.nvenergy.com/company/rates/snv/schedules/images/StatementofRates.pdfhttps://www.nvenergy.com/company/rates/nnv/electric/schedules/images/Statement_of_Rates_Electric_North.pdf


19/19

l / d | d |

multiplier. These inputs from the confidential version of the model are simply hard coded into the Avoided Costs tab in the NevadaPublic

Tool.Instead, weve chosen to keep the unmodified capacity value, but highlight that the generation capacity value under these avo ided

energy value assumptions could be higher. We believe this approach to be conservative in regards to the potential value of DERs.

Note that Sierra Pacific Powersrecently approved 2nd

Amendment to its 2014-2016 Action Plan (Docket No. 15-08011) included a new

methodology for calculating the avoided cost payments for up to 25 MWs of PURPA QF contracts. This methodology produced monthly

average $/MWh rates that NVE indicates will serve as a cap on long-term payments to winning bids in future competitive QF solicitations.

We considered replacing the values in the E3 framework with thes e Capped Long-Term Avoided Costs as approved in the docket, butdecided against it for the following reasons. First, using these monthly values would lose the hourly granularity that the E3 approach is

based on. Hourly granularity is important to properly reflect the coincidence of solar generation with hourly prices, and these values are

not publicly available from NVE. Second, we would lose the geographic specificity between SPP and NPC contained within the E3 model.

Ancillary Services

We relied on the E3 methodology, but applied the same set of annual adjustors that were applied to the avoided energy value. While the

value of ancillary services is not directly tied to the underlying energy prices to the same extent as line losses, the opportunity cost of not

participating in the energy market is often the basis for ancillary service payments. Furthermore, E3s approximation of anci llary services

value was derived based on a percentage of total energy production cost. For this reason, adjusting for gas price in the same way is a

reasonable approximation of the value of future ancillary services.


Include Distribution Avoided Costs in the E3 NevadaPublicToolby checking the box in cell B25 on the User Inputs tab.

CO2Emissions

E3 modeled CO2costs based on NVEs estimate of carbon allowance prices from its 2013 Integrated Resource Plan. These prices are based

on CPP compliance starting in 2019. To implement this, users should check the box in cell B20 on the User Inputs tab.

Environmental Costs

E3 did not provide any functionality to incorporate user-defined values for the social benefits of avoided CO2within their model. Given that

limitation, we calculated the levelized value for social cost of carbon (based on EPA values) outside of the NevadaPublicTool.

Renewable Energy Certificates

E3 provided several PPA assumptions in their 2014 model: $80/MWh and $100/MWh and $120/MWh. Solar costs have come down

significantly since 2014, to the point where the above-market cost under E3s framework (i.e. the basis for RPS compliance value) is non -

existent. To be conservative, we eliminated the RPS compliance value attributable to DG given the low cost utility-scale PPAs recently

signed by NVE.

Utility Integration, Utility Administration, Transmission Capacity, and Criteria Pollutants

No change to base tool assumptions.

C. Extracting Resulting Values

To extract the values we used for this analysis, we filtered the results to look only at solar PV for 2016. Since E3s NevadaPublicToollooks

at costs and benefits from PV systems 2004 through 2016, we filter out the results for current systems already installed up to and including

2015 since there are several factors for those systems which wont be applicable going forward, including receiving incentives and

receiving a multiplier on the RPS compliance value. On the Results tab, we filtered out wind (B11), existing installations (B17), and

2014/2015 installations (B18). Levelized results for each avoided cost category can be found on the Results tab in Rows 221-228, Column

E. Levelized costs can be found in Rows 142-146. For costs, we included Participant Bill Savings, Integration Costs, and NEM Program Costs.

D. Non-E3 quantified Values

Voltage Support

Using substation loading data from Fresno, California, a similar region for which there is publicly available data, the typical low-voltage,

secondary system voltage drop is calculated for each hour of the average day. The secondary system consists of a 25 kVA transformer with

a X/R ratio near unity and 100 feet of secondary triplex lines of 4/0 AWG aluminum conductor. The average production profile of one smart

inverter with active power priority, but capable of providing reactive power outside daylight hours, is used to offset the secondary systems

active and reactive power net load. The reduction in voltage drop is then assessed. Using SolarCity voltage data for Nevada, it is estimated

that targeting 3% of customers at the system level would result in the ability to lower the voltage of the other 97% of customers. This

performance resulted in an average energy savings of 0.4%. Impacts to the medium-voltage, primary systems voltage and losses are not

assessed. If included, they would result in increased energy savings beyond 0.4%, making this methodology generally conservative.

EMBARGOED UNTIL 6 PM PT MON-- SolarCity_NRDC - Nevada NEM Benefit Cost Analysis.pdf

Documents

Transcript of EMBARGOED UNTIL 6 PM PT MON-- SolarCity_NRDC - Nevada NEM Benefit Cost Analysis.pdf